Whether you’re selling in your domestic market or further afield, how you price is critical to how customers perceive value in your offering. Your overall strategy should be reflected in your pricing. In other words, price should not drive your product and service; the results you produce, the service you provide and how you deliver it should drive your pricing.
Pricing isn’t just a number on a tag or a figure at the bottom of a receipt, but rather a pivotal aspect of your business strategy that communicates value to your customers. How you price your product or service holds the key to how consumers perceive its worth. Yet, it’s not merely about setting a price; it’s about aligning your pricing strategy with the essence of what you offer. In other words, value is informed by price which in turn feeds the ability to achieve the price.
Let me paint you a picture…
Imagine stepping into a high-end restaurant. The ambiance, service, and quality of the food are all elements blending together to create an experience. Now, consider the bill. It’s not just for the ingredients, it encompasses the entire journey from reservation to dessert. That’s the essence of strategic pricing – the culmination of the value proposition you extend to your customers.
This means that as soon as you can create any differentiation in your product, the sooner you can begin charging more than your competitors, wherever they happen to be located.
What I’ve found that is really interesting here is that the second you are charging more, you create two intertwined aspects within your pricing:
- Buyer’s inquisitiveness
When you place a product at a certain price, especially when it’s higher than expected, it piques the consumer’s interest in wanting to understand why it’s priced differently. If you are pricing higher, they will spend the time to understand why and what makes you different, directly allowing you the opportunity to differentiate your product.
Those on a market scan, solely fixated on the lowest price, might not align with your brand’s values. This is a bargain-hunter’s consumer, not a seeker of value. Investing in such customers might not be the most profitable long-term strategy as, in almost all circumstances, you have a cost to onboard a new customer.
- Value Capture
Pricing at a higher point confers the value of your product, signalling to the market that you offer something beyond the ordinary. And here’s the key: you’re the best advocate for your product’s value proposition. No one else can articulate the unique benefits your product delivers.
What this achieves is a way to capture more value from your customers from what you are actually offering.
To action this, consider differentiating your offering:
- Buyer’s inquisitiveness
- Longevity: Products that outlast competitors imply higher value over time, justifying a premium
- Versatility: Offering products that serve multiple purposes provides added convenience, effectively offering a discount in the customer’s mind
- Reduced Maintenance: Incorporating hassle-free features reduces ongoing costs, a significant incentive for consumers
- Enhanced Performance: Products optimised for specific use cases convey superior performance, even if it means a specialised, one-use product
Every value you deliver should resonate in your pricing strategy. Consider Microsoft Office—its bundled services have continued to dominate the market because perceived value drives its premium pricing. While you can purchase Word individually, the value of purchasing the Office suite because of its number of services and value has driven amazing pricing power for Microsoft. Even when competitors for one or all products exist, Office has retained unbelievable market share and at a significant premium. That pricing premium represents the perceived value that customers then find reasons to accept.
In short, your pricing strategy should seek to ascribe a value to all of the elements and value drivers that you deliver, differentiating you from your competitors.